The Law of General Average

Luca Anderlini and Joshua Teitlebaum ()
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Joshua Teitlebaum: Georgetown Law Center, Georgetown University, https://www.law.georgetown.edu/faculty/joshua-c-teitelbaum/

Working Papers from Georgetown University, Department of Economics

Abstract: Part of a ship’s cargo is jettisoned in order to save the vessel and the remaining cargo from imminent peril. How should the loss be shared among the cargo owners? The law of general average, an ancient principle of maritime law, prescribes that the owners share the loss proportionally according to the respective values of their cargo. We analyze whether the law of general average is a truthful and efficient mechanism. That is, we investigate whether it induces truthful reporting of cargo values and yields a Pareto efficient allocation in equilibrium. We show that the law of general average is neither truthful nor efficient if owners have expected utility preferences, but is both truthful and efficient if owners have maxmin utility preferences. We discuss why maxmin behavior may be reasonable in the general average context.

Keywords: General average; loss sharing; maritime law; maxmin; mutual insurance; truthful equilibrium; Pareto efficiency. (search for similar items in EconPapers)
JEL-codes: C72 D82 G22 K39 (search for similar items in EconPapers)
Pages: 27
Date: 2024-03-18
New Economics Papers: this item is included in nep-law and nep-upt
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Working Paper: The Law of General Average (2024)
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